Amazon tax spreads in 2017

Dec 21, 2016
| Gail Cole

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There’s something on the way from Amazon.com for residents of Iowa, Louisiana, and Utah. It isn’t gift-wrapped; it won’t arrive by December 25; and it’s probably not on very many Wish Lists, but it’s bound to make at least a few people happy: those responsible for balancing the state’s budgets. Beginning January 1, 2017, Amazon will start charging sales tax in Iowa, Louisiana, and Utah.

Utah

The Utah news broke first, on December 7. Governor Gary Herbert told reporters that his administration had been “working to get a voluntary agreement with Amazon, and it looks like we’ve done that now.” It’s a voluntary tax collection rather than an obligatory one because Amazon lacks a substantial nexus with the state. Under Utah law, a business cannot be required to collect sales or use tax on Utah transactions unless it has a substantial physical presence there.

Although there have been repeated attempts to enact remote sales tax legislation in Utah, proponents thus far have been unable to overcome the opposition. The new agreement with Amazon may help build momentum for a tax on remote sales. Gov. Herbert is certainly on board; he recommends aggressively pursuing “collection of the estimated $200 million in taxes currently due on remote sales.” Amazon may take the lion’s share of sales, but it isn’t the only out-of-state seller selling to Utah residents.

Louisiana

Amazon announced yesterday that it would start collecting Louisiana sales tax on January 1, 2017, and the Louisiana Department of Revenue has confirmed the news. That means Louisiana residents could once again be eligible to participate in Amazon’s Associates Program; they were shut out in April 2016, after Louisiana enacted internet sales tax in the form of click-through and affiliate nexus. This, too, appears to be voluntary collection.

However, many other businesses don’t collect remote sales tax, and many states are frustrated by the physical presence precedent that impedes them from imposing a tax obligation on out-of-state companies that advertise and sell to their residents.

Proponents of online sales tax hoped to see a favorable bill passed in 2016. Now they’re looking ahead to 2017. With a Republican-controlled House, Senate, and White House, federal tax reform is likely. It remains to be seen whether or not online sales tax legislation will be considered.

Alternatively, a solution could come from the courts. The Supreme Court of the United States (SCOTUS) recently allowed Colorado’s use tax reporting requirement to stand, but it refused to use it to reconsider Quill Corp. v. North Dakota (the pivotal 1992 case that upheld the physical presence requirement). In addition, the Ohio Supreme Court determined in November that a business can have substantial nexus without a physical presence, although the case pertained to Ohio’s commercial activity tax, not sales tax.

It seems that, unless or until Congress or SCOTUS acts, states will continue to take on the issue. Virginia could be the next to do so: Governor Terry McAuliffe is calling “for online businesses with warehouses or fulfillment centers in Virginia to pay state sales tax” (WSJ).

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Avalara Author

Gail Cole

Avalara AuthorGail Cole

Gail Cole is a Senior Writer at Avalara. She’s on a mission to uncover unusual tax facts and make complex laws and legislation more digestible for accounting and business professionals — or anyone interested in learning about tax compliance.